Guatemala: Economy contracts at historic pace in Q2 amid fallout from pandemic
The economy contracted a whopping 9.6% year-on-year in Q2 (Q1: +0.9% yoy). The print marked the steepest drop on record and came on the back of the Covid-19 pandemic and associated containment measures, which battered all sectors of the economy.
Domestic demand dived 10.8% in the quarter on freefalling private consumption (Q2: -8.8% yoy; Q1: +1.9% yoy) and plummeting fixed investment (Q2: -17.9% yoy; Q1: -3.7%), while public expenditure also contracted (Q2: -2.6% yoy; Q1: +3.5% yoy). Restrictive measures imposed to curb the spread of the virus weighed heavily on household spending and business activity in the quarter. Moreover, a jump in the unemployment rate in the United States dragged markedly on remittance inflows, which fell significantly and further dented household spending.
On the external front, lockdowns and containment measures abroad affected the trade flow notably and, consequently, exports of goods and services were pummeled in the quarter (Q2: -18.9% yoy; Q1: -0.5% yoy). Imports were also heavily affected by the pandemic in Q2, nosediving 18.8% and further highlighting weakened domestic demand (Q1: +3.5% yoy).
Looking ahead, the economy will continue to suffer this year and will likely enter recession due to the fallout from the pandemic. A recession in the United States will exacerbate matters, weighing heavily on remittances and thus denting household incomes. Next year, however, the economy is forecast to recover on a pickup in external and domestic demand. That said, the return to growth will be partly due to a supportive base effect and the balance of risks remains titled to the downside.